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Thu 9 Jun 2011 09:16 AM

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OPEC sees politics trump policy

Energy cartel’s ‘worst meeting’ ends without deal on oil quotas

OPEC sees politics trump policy
OPEC Secretary General Abdullah al-Badri

OPEC's
shock failure on Wednesday to reach agreement breaks with a long tradition of
putting output policy above even the most intense political rivalries.

Turmoil
across the Arab world and a deepening divide between OPEC's two biggest members
Saudi Arabia and Iran was always expected to complicate the group's response to
oil prices that climbed to around $118 a barrel on Wednesday. But until the
last moment, analysts and markets anticipated at least a small production
increase could be agreed if only to legitimise leakage already taking place
above output targets.

Instead,
ministers didn't bother even trying to present the meeting as a decision to maintain
existing production targets, although in public they linked their failure to
agree to differing views of demand rather than their political opinions.

"It
is absolutely amazing," said Alirio Parra, Venezuela's oil minister from
1992-1994 and a former OPEC president. "This is not market
leadership."

OPEC
Secretary General Abdullah al-Badri told a hastily-convened news briefing
ministers had different numbers on demand, but OPEC was "not in
crisis".

Saudi
Oil Minister Ali al-Naimi said the Organization of the Petroleum Exporting
Countries retained its status as an economic organisation, not a political one.

"You
know that Saudi Arabia over the last 16 years or so has worked very, very hard
to depoliticise OPEC. We have succeeded," he told reporters.

Whatever
OPEC as a group decides, Saudi Arabia as the holder of the bulk of the world's
spare capacity, can always add supply if it sees demand for more oil.

That
makes it all the more surprising that a 50 year-old group that has maintained a
semblance of unity through two Gulf Wars and the bitter, protracted Iran-Iraq
war could not muster support for a deal that might makes little difference to
supply.

The
leading opponent to the Saudi-led push for more oil to calm a volatile oil
market was Iran.

The
two powers have long disagreed over oil prices, with Saudi Arabia favouring
moderate prices to preserve demand for its vast reserves for the long term and
to nurture ties with the world's leading consumer the United States.

Iran
has clamoured for higher prices in part to meet its own domestic budgetary
needs and not just to annoy the West.

Shi'ite
Iran's differences with Sunni Saudi Arabia have intensified over Bahrain, where
the Shi'ite majority has been protesting against the country's minority Sunni
rule.

Venezuela,
has traditionally sided with Iran in OPEC and on the wider world stage, and was
among seven countries opposed to its decision to raise OPEC output.

Venezuela's
Oil Minister Rafael Ramirez told reporters each minister had "a different
view of how demand will be".

But
the stance was made much more political by Venezuelan President Hugo Chavez's
statement on Tuesday that there was no need for more oil, which he made at a
shared news conference with President Rafael Correa of Ecuador, OPEC's smallest
producer.

Venezuela's
long-standing differences with the United States, as well as with Saudi Arabia,
have been aggravated by US sanctions against its state-oil company PDVSA for
supplying Iran an oil blending component in defiance of US law.

"They
want higher prices than us and after US sanctions on PDVSA, Venezuela doesn't
want to do the Americans any favours," one Gulf delegate said.

The
other opponents were Angola, Iraq, Algeria and Libya.

Breaking
a silence of several days, Naimi, who had only the backing of his fellow Gulf
producers, told reporters the meeting was "one of the worst" he had
known.

"In
my past 16 years as oil minister, I have not seen such an obstinate
position," he said.

Analysts
said there was genuine uncertainty about future oil demand as world economic
recovery faltered, but they said politics had to be a factor in Wednesday's
lack of accord.

Before
Wednesday's OPEC conference, David Kirsch of PFC Energy in Washington had said
the backdrop of Middle Eastern unrest meant it was taking place "in
arguably the most contentious political setting in more than a decade".

A
collective lack of experience around the OPEC table, with around half the
ministers new or mere caretakers, contributed.

"There
were so many junior ministers or people below ministerial level, Naimi was
unable to engage with them," Kirsch said.

One
of the brand new representatives was Iran's Mohammad Aliabadi, whose last job
was head of Iran's Olympic committee.

He
was appointed caretaker oil minister last week after President Mahmoud
Ahmedinejad withdrew his threat to attend OPEC.

Another
was Libya's Omran Abukraa. He was named to head Libya's OPEC delegation after
the defection of the nation's top oil official Shokri Ghanem last week and only
arrived in Vienna hours after Wednesday's meeting had begun.

He
could have found himself at odds with one of Naimi's Gulf allies Qatar, which
has helped rebels opposing Libyan ruler Muammar Gaddafi, to market their crude.

Such
tensions are not expected to disappear quickly.

If
Naimi wants to avoid further disarray, he has work to do.

"It
could be a bit of a wake-up call that they (Saudi) need to up their diplomacy
to sway some key states their way," said Samuel Ciszuk of IHS Global
Insight.

"At
times of heated politics or ideological reasons, Saudi (has) struggled to
dominate as much as it could have given its size vis-a-vis others in
OPEC."

Riyadh
would be anxious to reassure the world's biggest oil consumer it had done all
it could so far, analysts said.

"The
Saudis would have liked the gold star for political good behaviour," said
Katherine Spector of Canadian Imperial Bank of Commerce in New York.

The
Iranians and Venezuelans, meanwhile, are producing all they can and have only
negative political points to score with the United States.

"The
only way they get extra revenue is from a higher price. And they aren't going
to get any gold stars from the US or Western powers that be anyway,"
Spector added.

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